While auto dealers are often eager to finance customers—they want to sell cars, after all—the terms aren't always favorable to consumers. LeaseTrader.com, which matches up consumers looking to unload their leases with those who want them, sent out a reminder yesterday that seven-year financing terms can be quite expensive:
Similar to the problems plaguing the current housing situation, these loans could damage both consumers and banks that participate in the lending. At 84-month terms, a $20,000 car will cost an additional $5,335 in interest alone—roughly a quarter of the entire car's price.
"In today's economy, people are finding it harder to project their financial situation over a longer period of time," said Sergio Stiberman, CEO and founder of LeaseTrader.com. "It's much easier to calculate and project your financial situation for the next couple of years than an 84-month period. And with all the uncertainty in today's economy, it's very unsettling to assume your financial picture six or seven years from today."
Of course, sometimes tacking on an extra year (or two) can be worth it. During my recent car purchase, the dealer first calculated the payment for a three-year term. It would have been over $500 a month, which was more than my husband and I wanted to pay. We stretched it to a four-year financing plan, which means we're paying more in interest, but the lower monthly payment of $420 makes it worth it for us.